Buy Mahindra & Mahindra; target of Rs 1037: Edelweiss

Edelweiss's research report on Mahindra & Mahindra

Mahindra & Mahindra’s (M&M)* Q4FY18 EBITDA of ~INR20bn (up 61% YoY) beat our estimate by 6% led by gross margin beat (third consecutive quarter) and cost reduction initiatives. We maintain adequate levers exist to manage cost pressures in FY19. Uptick in economic activity and normal monsoon would drive demand across segments in FY19. Management guided for tractor industry growth of 8-10% for FY19, with an upside risk.

Outlook

We estimate core EPS CAGR of 23% over FY18-20, led by strong UVs (operating leverage). We maintain ‘BUY/SO’ with SoTP-based TP of INR1,037 (14x FY20E core EPS, INR115 cash per share, INR309 for listed subsidiaries). At CMP, the stock trades at FY20E PER of 12.8x (ex. subsidiaries).